FERC Adopts Major Interconnection Process Reforms

On July 28, 2023, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 2023, directing interconnection reforms intended to address the current queue backlogs and accelerate queue processing. It requires transmission providers to restructure queues from the current serial study procedures to a more efficient cluster study process with more enforceable study deadlines, while also requiring interconnection customers to make greater commitments to projects earlier in the process. These reforms are an important step toward improving the generator interconnection process, but additional steps are needed to address the cost allocation issues that must also be reformed to improve the process and better facilitate generation development.

FERC first adopted standardized procedures for processing interconnection requests in 2003. Since that time, under procedures where in many regions each interconnection request is studied serially, queues have become chronically backlogged and severely delayed. The uncertain timing is exacerbated when at the end of the study process customers may be assigned significant system expansion costs that, in many regions, are borne solely by the customer and that remain subject to ongoing uncertainty made even worse by the potential for additional late-stage upgrade costs imposed by neighboring “affected systems” that do not follow a consistent study process or timeline. This can lead to a cycle of late-stage withdrawals, restudies and additional queue delays. Recognizing the untenable situation, FERC proposed reforms in June 2022 intended to address many of the current issues. 

Order No. 2023 directs major interconnection reforms

On July 28, 2023, FERC issued Order No. 2023 adopting many of the proposed reforms that, once implemented, are expected to improve the interconnection process. These reforms require transmission providers to restructure current processes to a more efficient cluster study process and implement additional procedures, including more enforceable deadlines, for processing those clusters.

• Cluster studies. Transmission providers will be required to study interconnection requests in clusters, a more efficient approach to processing large numbers of requests. Order No. 2023 sets out procedures for processing a cluster study, a cluster restudy, and a framework for allocating related study costs and upgrade costs.
• Study deadlines. Unlike under the current procedures where study deadlines are effectively unenforceable, transmission providers will be subject to more enforceable deadlines for completing studies and subject to monetary penalties increasing up to $2,500 per business day for missing deadlines.
• Affected systems. The emphasis on more efficient and timely processing applies to neighboring systems as well by requiring those “affected systems” that want to participate in the process to adhere to standardized procedures, timelines and agreements. Certain affected systems may also be subject to monetary penalties for missing study deadlines.
• Study practices. Order No. 2023 also requires improvements to the study process. For instance, transmission providers must at least assess whether certain alternative transmission technologies could address issues identified in the study process, instead of more traditional network upgrades. Affected systems studies must also be conducted using the more appropriate “energy resource” modeling standard, which does not apply inappropriate deliverability assessments.

Order No. 2023 also increases the requirements to enter and remain in the queue, requiring interconnection customers to make greater commitments to projects earlier in the process by, among other things, meeting more rigorous site control requirements and posting increasing “readiness” and other deposits throughout the process.

• Site control. Customers will need to demonstrate 90 percent project site control to enter the queue and 100 percent project site control by the facilities study stage, by providing documentation of exclusive land rights, e.g., a lease or lease option. Except under certain limited circumstances, customers will no longer have the option to provide a financial deposit in lieu of demonstrating site control.
• Increased financial deposits. Customers must post financial deposits demonstrating “readiness” to enter and remain in the queue, increasing throughout the process up to 10 percent of the customer’s assigned network upgrade costs to enter the facilities study. Previously proposed non-financial options to demonstrate “readiness” (e.g., an executed offtake or sale agreement) were not adopted in the final reforms. Order No. 2023 also requires increased deposits to fund interconnection studies and a deposit due at interconnection agreement execution of 20 percent of network upgrade costs.
• Withdrawal penalties. After entering the queue, customers that later withdraw will be subject to increasing monetary penalties, with certain exemptions for significant network upgrade cost increases during the study process, if the withdrawal has a material impact on the cost or timing of equal or lower queued requests. Penalty funds will be used to offset cost increases imposed on those other requests.

The reforms directed in Order No. 2023 are a significant step toward addressing the current queue backlogs and delays that hinder new generation development. It requires more streamlined and timely study processes including penalties for missing study deadlines, and it establishes procedures and deadlines for affected system participation, the absence of which has been a significant source of uncertainty in the process. Transmission provider compliance filings will be required within 90 days of Order No. 2023’s publication in the Federal Register, and in assessing those filings FERC should continue to recognize the value of standardized procedures and that simple claims of regional preferences by non-independent transmission providers are not sufficient to justify deviations that are not truly consistent with or superior to these reforms.

Additional reforms are still needed 

Order No. 2023, however, leaves unaddressed central issues that could continue to hinder new generation development. Overreliance on interconnection processes for major transmission system expansions and rules in many regions under which interconnection customers that are assigned these significant system upgrades are also deemed the sole beneficiaries and assigned all the associated costs under so-called “participant funding” rules ignore the benefits of these upgrades to many other system users and can undermine a project regardless of its viability at the outset. These issues must also be reformed to truly improve the interconnection process and better facilitate generation development.